Venezuela Says Transnational Oil Companies Owe Back Taxes and Have Violated Contracts

During a hearing at the National Assembly, Venezuela’s Minister of Energy and Petroleum accused the country’s former oil managers of running the industry in the interests of transnational oil companies. Also, he accused these companies of massive tax evasion.

Venezuela PdVSA president Rafael Ramírez talks to the National Assembly
According to PdVSA president Ramírez, 90% of the transnationals participating in operating agreements, have committed tax evasion, cheating the Venezuelan state out of $3 billion in taxes and $1 billion in royalties.
Credit: Agencia Bolivariana de Noticias (ABN)

Caracas, Venezuela, May 25, 2005 ( — Venezuela’s Minister of Energy and Mines, Rafael Ramírez, appeared before the Venezuelan National Assembly today in order to expose the abuses committed by transnational corporations in Venezuela’s oil sector and to inform the Venezuelan people that with the opening of the petroleum industry to foreign companies, during the 1990’s, “a true assault was carried out against Venezuelan petroleum.”

Ramírez explained that over the course of the past decade and a half, foreign investment amounted to an assault “coordinated by international institutions of oil consuming nations and the large transnationals, who in complicity of the oligarchy and their political representatives conspired against the Venezuelan state, causing their subsequent economic and social crisis.”

Ramírez, who is also the President of Venezuela’s state owned petroleum company, PdVSA, offered his testimony before a Special Commission that has been formed to investigate the irregularities detected by the Ministry of Energy and Petroleum in the drawing up and the execution of service agreements.  These service agreements, signed between the former management of PdVSA and transnational oil companies, such as Chevron Texaco, Royal Dutch Shell, Total, and Repsol, were signed between 1992 and 1997, the years of years of the so-called “petroleum opening.”

Currently transnational oil companies produce about 500,000 barrels of oil per day (bpd) via these service agreements and another 600,000 bpd of extra-heavy oil as part of joint ventures with PdVSA, in the Orinoco Oil Belt. According to the Ministry of Energy and Mines, PdVSA produces the remaining 2 million bpd, for a Venezuelan total of about 3.2 million bpd. However, analysts opposed to the government and its oil policy, contend that PdVSA produces only 1.4 million bpd or 600,000 less than the government claims.

In the course of renegotiating the 32 service agreements, it has come to light that, according to Ramírez, 90% of the transnationals have committed tax evasion, cheating the Venezuelan state out of $3 billion in taxes and $1 billion in royalties. “Some of these companies haven’t paid taxes for years,” said Ramirez, adding, “They are mocking our laws. This is an unacceptable situation. We can’t permit this.”

“As we will see, this is not about isolated or fortuitous incidents,” Ramírez assured, affirming that on the contrary, “this is a strategy that unfolded since the nationalization of PdVSA in 1976 and is oriented towards taking control over PdVSA for transnational interests.” Ramirez summarized the essence of the “well planned and designed,” petroleum opening as a “Trojan Horse.” 

In October of last year, the Chavez government announced that transnational oil companies that had service agreements with PdVSA that were signed in the 1990’s, must now be converted into joint ventures, in which foreign companies are limited to a 49% stake in any project, reserving the majority share for PdVSA. Also, in April of this year, the Venezuelan government raised the royalties that companies in the Orinoco Oil Belt must pay, from 1% to 16%. So far all oil companies operating in Venezuela, except for ExxonMobil, have accepted the new terms.

Ramírez asserted that “with the petroleum opening, the transnational capital tried to expropriate the handling and the sovereign use of our main natural resource: petroleum,” converting it from a natural resource of the Venezuelan state into a natural resource at the disposal of the consumer countries of the world.

According to the PdVSA president, the collapse of Venezuela’s oil revenue in the 1990’s is attributable to earlier government efforts to sweep away state control over the oil industry.  “They were prepared to turn over our energy resources to transnational capital and to yield it to privatization and those who wanted to impose their version of globalization on Venezuela,” he said.

New attacks

In reference to the recent opposition media’s reporting of supposed problems in the oil industry, Ramírez testified that Venezuela’s oil industry is now being attacked by the same people who initiated the economic sabotage of December 2002 to February 2003, which effectively shutdown the oil industry for that time and caused losses of over $14 billion. Ramirez said that the former oil industry managers are resisting the control Venezuela’s government is exerting over its own industry by engaging in a disinformation campaign. 

Ramírez requested that an investigation be carried out in order to determine who is responsible for undermining PdVSA’s independence and recommended that the National Assembly adopt a firm and united position with respect to the scandal.

“The game is over with the 32 contracts and now the truth will be made known,” said Ramirez. He left the revising of the 32 service agreements and the actions of the transnational companies in the hands of the National Assembly, stating that “this is an affair that the National Assembly must rule on and propose pertinent actions to take.”  He also recommended that other state entities such as the Central Bank of Venezuela (BCV) and Venezuela’s tax agency Seniat should be involved in the evaluation. According to Ramirez, half of the 32 service agreements are money losing ventures for Venezuela, where PdVSA pays more to transnationals for oil production than it can recoup from the sales of that oil.

Ramirez also highlighted irregularities in the extra-heavy oil production joint ventures, saying that Sincor, which is a joint venture with France’s Total, has violated its contract repeatedly, exploiting a far larger area than it is supposed to. Currently there are five extra-heavy oil joint ventures, about which Ramirez said, “We have found irregularities in all.” The other four companies involved in the joint ventures are Exxon Mobil Corp., Chevron, British Petroleum, and ConocoPhillips.

Ramirez also pointed out that Citgo Corp, the subsidiary of PdVSA operating in the United States, had overpaid taxes in that country, and that PdVSA would work to recuperate these taxes in accordance with the U.S.-Venezuelan Double Taxation Treaty.